Liffe (Holdings) plc

The London International Financial Futures and Options Exchange (Liffe) may be based in one of the world’s oldest financial centres, but it is embracing the new economy with particular vigour.

Since moving from a mutual to a corporate structure in February 1999, it has done away with open outcry trading – people buying and selling risk in the trading pits at the City exchange – in favour of the computerised trading system Connect. Only Liffe’s soft commodities trading arm, which is based at Commodity Quay, still operates traditionally, although this is being reviewed.

Earlier this year, Liffe hooked up with the Chicago Mercantile Exchange. Connect is used here to allow members to trade across both exchanges.

Its latest foray into the new economy comes through the launch in January of An exchange developed with two computer companies, it will allow buyers and sellers in the lucrative weather derivatives market to strike deals online.

Liffe’s legal department is not immune to this new outlook. Created a year ago following the demutualisation, it pulled together the lawyers who had been working in the regulatory areas of the exchange.

One lawyer, Ben Bennett, continues to work outside of the team full-time but concentrates solely on the regulatory disciplinary panel and appeals panel.

But the centralised in-house team carries out all remaining legal work under general counsel and company secretary Adam Eades. It now comprises four lawyers, including Eades, and two company secretaries.

Eades initially worked as a banker for the Yorkshire Bank before retraining as a lawyer in 1989. After finishing his traineeship in private practice he went back into business as a legal officer at IMRO. Four-and-a-half years ago he joined Liffe as head of market investigation and re-enforcement.

Eades explains that as Liffe has developed over the last 18 months, so too has its fledgling legal department.

“We are having to become much more flexible in our approach. We are building up brand new expertise in the IT field because Liffe has moved from a traditional financial institution to, in part, a technology company. It is a complete reinvention of the exchange.”

The external firms that advise Liffe have also been asked to adapt to this new flexible future.

Prior to the creation of the legal services department, around half a dozen firms advised the exchange on an ad hoc basis. But Eades found that the old system was both hard to manage and uneconomical.

One of his first roles was to therefore create a far more formal panel. “We decided to review the various law firms the exchange had used. We asked the departments who they liked and why and we then went out and met a range of firms. So in essence we did a complete review and set up a new panel,” he says

The three firms that won were Clifford Chance, Allen & Overy and Norton Rose.

Clifford Chance has been Liffe’s main corporate firm for over a decade. Allen & Overy first worked for the exchange on Connect and Norton Rose had also acted on disciplinary tribunals in the past.

But the three firms still had to prove their worth during the review.

Eades says that he looked for a range of services from potential panel members. “We wanted to see that the firm had depth of strength and a support team that could respond. We also wanted complimentary departments,” he says.

As well as getting along personally with external lawyers, knowledge of derivatives and futures is key. Eades explains: “We saw one or two firms which did not have that and to teach some-one would be a long and drawn out affair.”

But two of the most important requirements were variable billing and cost efficiency.

Eades says: “We were looking for firms to be flexible and creative. We were not going to take standard hourly rates. We wanted people to say, ‘We can do bulk rates, we can offer fixed fees for certain types of work’ and so on.”

In return for discounts, Eades was able to offer a constant and guaranteed stream of work, hence the importance of keeping the panel tight.

But not all firms responded positively to the fee negotiations. “It varied between the size of firm. The bigger firms all showed a willingness to adapt,” he says.

“But some of the medium-sized firms we saw and had used in the past were not so geared up. At least one was quite nonplussed when we suggested that we wanted to do it this way.”

The panel has now been in place for a year and is undergoing its first formal review since its inception.

But Eades adds that the firms are continually assessed. He says: “It is an ongoing thing because if anyone was not meeting the criteria that we set we would be on the telephone straightaway.

“We are going to be meeting each of them 12 months on to see how it is going. It is good housekeeping but we would not be looking to add to the panel at this time.”

The next big thing for the legal team and its external advisers is moving Liffe on from its current corporate structure to full listing. People can currently buy and sell shares in the company through brokers, Cazenove, but Eades expects to carry out a stock exchange IPO for the technology arm in the near future.
Adam Eades
Head of legal, general counsel and company secretary
Liffe (Holdings) plc

Organisation Liffe (Holdings) UK
Sector Finance
Legal function Five lawyers
Head of legal Adam Eades, general counsel and company secretary
Reporting to John Foyle, deputy chief executive
Main law firms Clifford Chance, Allen & Overy and Norton Rose